What Is the Mansion Tax NYC?
The mansion tax is a real estate transfer tax imposed by New York State on any sale or transfer of real estate of $1 million or more. It was first introduced in 1989 when that obviously bought a much larger apartment.
Adjusted for inflation, 2024's mansion tax wouldn't kick in until $2,600,000 but unfortunately, the floor has never been raised. Since most Manhattan and many NYC buyers end up paying the mansion tax, it's important to understand exactly what it is and how much it costs.
How Much Is the New York City Mansion Tax?
The mansion tax is calculated as a percentage of the purchase price and the rate increases along with the price -
| Purchase Price | Mansion Tax |
| $1 - 2 million | 1.00% |
| $2 - 3 million | 1.25% |
| $3 - 5 million | 1.50% |
| $5 - 10 million | 2.25% |
| $10 - 15 million | 3.25% |
| $15 - 20 million | 3.50% |
| $20 - 25 million | 3.75% |
| $25+ million | 3.90% |
Anyone who buys a piece of real estate for $1 million or more is subject to the mansion tax. The tax rate is a simple percentage of the purchase price. For example, if you buy an apartment for $1.5 million, you would have to pay $15,000.
Because the mansion tax is paid on the entire value of the property, the difference between buying an apartment for $999,999 and $1 million isn't one dollar, it's $10,001. For that reason, very few properties sell for just over $1 million.
You can see this in listing prices as well. On Yoreevo, there are currently 199 apartments on the market between $999,000 and $999,999 but only 19 between $1,000,000 and $1,001,000.
Who Pays the NYC Mansion Tax?
Unless otherwise negotiated, the buyer pays the mansion tax. Just like the default payor of the transfer taxes is the seller, the default for the mansion tax is the buyer.
For an comprehensive tally of your buyer closing costs, check out our online calculator.
Does the Mansion Tax Apply to the Purchase of New Construction?
Unlike the mortgage recording tax, which can be avoided by buying a co-op, there’s no way around the mansion tax. It applies on new development, resale properties, condos, co-ops and houses.
According to the law which created the mansion tax, it is due on the purchase of “any premises that is or may be used in whole or in part as a personal residence, and shall include a one, two, or three-family house, an individual condominium unit, or a cooperative apartment unit.” The law even states that if the buyer is exempt from the tax for some reason, the seller has to pay it. If anyone can think of a way around that, please let us know!
Is the Mansion Tax Deductible?
For readers who are familiar with real estate commission rebates, think of the mansion tax as an anti-commission rebate. The mansion tax does not directly affect your tax return but it is added to your cost basis. Conversely, a commission rebate is not taxable but it reduces your cost basis.
For example, say you bought an apartment for $1,250,000. Your mansion tax bill would be $12,500. That payment won’t affect your tax bill for the year of your purchase. However, when you go to sell the property, your cost basis will be $1,262,500 – the purchase price plus the mansion tax. So while not immediately deductible, assuming you are able to sell the property at a gain, the mansion tax will shield some of those gains.
The federal tax code explicitly specifies which taxes are deductible for federal tax purposes – these include state income and property taxes (up to the $10,000 SALT cap) – so there’s no opportunity to get creative here. The mansion tax is not on the list and is not deductible.
How Can I Avoid Paying the Mansion Tax?
It's extremely difficult to avoid paying the mansion tax. In close situations, a commission rebate can help push the price back under $1 million. For example, since a commission rebate lowers your cost basis, it can make that $1,010,000 purchase price $989,800 (2% lower) in eyes of the Internal Revenue Service (IRS). It’s obviously important to dot your i’s and cross your t’s but it can be done.
At this price level, commission rebates become an even larger advantage over other buyers since your incremental 2% buying power becomes 3%. Once you get away from the $1 million threshold, though, there’s not much you can do.
One other option in tight situations is attributing part of the purchase price to furniture that comes with the apartment. This has to be within reason though – the IRS is not going to believe you paid $10,000 for the owner’s IKEA bed. It’s also important to remember that you’d have to pay sales tax on any furniture purchased.
In short, if you think there is a way to avoid paying the mansion tax, we highly suggest you run it by your accountant and/or financial advisor to get their blessing.
How Do I File and Pay the Mansion Tax?
If you are buying a co-op, the seller’s attorney will collect your mansion tax at closing and send it to the county clerk along with the transfer tax (paid by the seller) and a Form TP-584.
If buying real property like a condo or house, your title company will collect the mansion tax and pay it, again with the Form TP-584.
The mansion tax due date is technically 15 days after closing but you should plan on paying it at closing (and almost certainly will).
What Is the Future For the Mansion Tax?
In 2019, mansion tax rates were increased for properties above $2 million and the rates now increase along with the purchase price (see table above). There had previously been no changes since its implementation in 1989 so we're probably good for a bit.
The changes do not address the most obvious complaint with the mansion tax - that the $1 million floor is outdated. The tax was meant to hit wealthy buyers, not the median Manhattan buyer. Raising the threshold would also spare everyone snarky “mansion” tax jokes (although we did like the NYTimes’ proposal to rename it the “Swanky Studio Tax”).
The obvious solution would be to adjust the $1 million for at least inflation or, more fairly, the increase in Manhattan property values since 1989. Unfortunately for NYC buyers, the government has only increased the size of the mansion tax while retaining its scope so for now, buyers will have to wait and see (and pay!).
